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Better Buy: Intel Corporation vs. NVIDIA Corporation

Investors and pundits have clearly been in NVIDIA's (NASDAQ:NVDA) corner compared to rival Intel(NASDAQ:INTC). In the past 12 months, NVIDIA shareholders have enjoyed an astounding 277% share price appreciation. After such a stellar run, it could be argued that NVIDIA stock is overvalued.

On the flip side, Intel, similar to NVIDIA, is putting its efforts and resources into conquering new high-growth markets. Though Intel's stock performance pales in comparison to NVIDIA's -- as does most every stock on the planet -- its 28% gain in the past year is nothing to sneeze at.

So, which is the better buy, Intel or NVIDIA?

Image source: NVIDIA.

The case for NVIDIA

It's not difficult to see why investors have been so enamored with NVIDIA lately. One peek at its most recent earnings explains it. NVIDIA's outstanding quarter was driven by "strength across all product lines."

The result was a record-breaking quarter including a 54% jump in revenue year over year to $2 billion. Gross margins of 59%, up from last year's 56.3%, were also a new NVIDIA record, along with earnings per share (EPS) that skyrocketed 104% to $0.94 excluding one-time items.

As impressive as NVIDIA's top and bottom lines were, what made the quarter even better was that it was able to accomplish those results, along with develop and introduce industry-standard graphic processing units (GPUs) like its GeForce lineup, and increase operating expenses a mere 11% to $544 million.

As if its third-quarter results weren't enough, NVIDIA's revenue forecast of $2.1 billion for the current quarter would be a 33% improvement over last year's $1.4 billion. And NVIDIA is increasing its capital return initiative to $1.25 billion from the expected $1 billion this fiscal year.

NVIDIA is the preeminent gaming GPU provider, and has already upgraded its GeForce units to enhance the gaming experience even further. NVIDIA is also expected to launch its next-gen Voltus GPU this year to power its super computing, artificial intelligence (AI) platform. Along with self-driving cars, NVIDIA's offerings are targeting all the right markets, at the right time.

Image source: Intel.

The case for Intel

Intel has many pundits beginning to change what had been a fairly muted tone. The concerns regarding Intel's reliance on the PC market simply don't apply. The PC market isn't "dead," just ask HP(NYSE: HPQ), which continues to gain market share and could become the world's PC leader when fourth-quarter sales results are released.

CEO Brian Krzanich has Intel heading in new directions, including self-driving cars, AI, virtual reality (VR), and drones, among others. Intel is also making strides in the Internet of Things (IoT) and utilizing its new technologies ideally by targeting specific markets. The recently released Responsive Retail Platform (RRP) incorporating real-time data, 3D, and sensors for brick-and-mortar retailers is one example.

Intel is taking a similar approach to its drone strategy designed specifically for commercial use, which many expect will be the driving force behind a nearly $127 billion market in 2020. But its future isn't entirely reliant on a steady PC market and budding new technologies. The shift to cloud data centers is in full force, and Intel already owns a dominant position.

Don't be surprised when Intel announces another quarter of record-breaking data center revenue on Jan. 26, just as it did last quarter. Intel's data center revenue climbed 10% to $4.5 billion in the third quarter. Though it remains a small piece of Intel's total revenue, quarterly IoT sales jumped 19% year over year in to $689 million. Add in the potential of Intel's other forays and the future looks bright.

Compared to NVIDIA's valuation of 40 times future earnings, Intel's modest stock price of 13 times makes it a slam dunk as the better buy, right? Not necessarily. NVIDIA, despite its incredible run and lofty valuation, is still a sound growth play given its inroads into gaming, autonomous cars, and deep learning.

For the more conservative income investor who can take slow but steady growth, Intel and its 2.75% dividend yield won't keep you up at night but still offers plenty of appreciation potential.

Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

Author

Tim has been writing professionally for several years after spending 18 years (Whew! Was it that long?)in both the retail and institutional side of the financial services industry. Tim resides in Portland, Oregon with his three children and the family dog.